HITTING THE BRAKES ON ADD-ON INSURANCE

Posted by Katy Gallagher179.40sc on March 10, 2017

Shadow Minister for Small Business and Financial Services Katy Gallagher and Shadow Consumer Affairs Minister Tim Hammond MP have backed-in calls from the ACCC and ASIC for insurance companies to do better when it came to the sale of add-on insurance sold by car dealerships.

Labor’s calls come in response to yesterday’s announcement from the ACCC that insurance companies’ proposal to limit commissions on add-on insurance was anti-competitive and would not solve the anti-consumer problems in the current market.

The insurance companies’ proposal came off the back of concerns raised in a number ASIC reports about the treatment of consumers by insurance companies when selling ‘add on’ insurance during the motor vehicle sales and finance processes.

ASIC identified a number of commonplace practices in which consumers are being sold products that are poorly designed, bad value for money, and in many cases inappropriate for consumers. ASIC’s findings included:

-Car dealers earnt $602 million in commissions, whereas consumers only received $144 million in successful insurance claims

-Commissions to car dealers were as high as 79 per cent of the value of the premium

-Premiums are often packaged up into one single premium payment, added to the cost of finance. This led to research showing that most consumers of add-on insurance were not even aware they were covered. Premiums were often not refunded if finance contracts were concluded early

-Some policies were sold wherein it is impossible for the consumer to receive a claim payout that is greater than the cost of the premium

-Some policies were sold to consumers who were never eligible to make a claim under the policy

-Motor vehicle consumers are principally interested in the purchase and financing of their new vehicle, and so are not usually in a position to properly assess the details of multiple complex insurance policies. The high-pressure environment of car sales also inhibits good decision making.

“The evidence given in last week’s Senate Estimates hearings show that there is more to do than simply cap commissions. Insurance companies aren’t doing themselves any favours by trying to make the minimum-possible change,” Senator Gallagher said

“Labor stands ready, willing and able to work with ASIC, the ACCC, the Government and insurance companies themselves to deliver better outcomes for consumers of add-on insurance products,” she said

‘ASIC has called on insurers to reduce commissions paid to those who sell add-on insurance, and the ACCC’s ruling does not prevent individual insurance companies from unilaterally lifting their game,’ Mr Hammond said.

‘ASIC has also called on insurance companies to improve the design, targeting and value-for-money of their add-on products, move away from single upfront premiums, and provide refunds to consumers who were sold insurance policies in circumstances that were unfair.